Sunday night at 9pm I chatted to Dale Curd (host of Guy Talk on Newstalk 1010) about money and weddings. On the show I threw out a simple alternative to the traditional notion of a wedding. A traditional wedding can easily run $35,000 in Toronto, with the average being between $20,000 and $30,000 across Canada. I’ve heard of six-figure weddings and I’ve attended weddings that cost less than $3,000. I’m using the $35,000 number for this example.
For those that were interested, here is the example I spoke about on the show:
The Base Case: $35,000 for a wedding
If we assume the couple finances this at 5% for 7 years, they are going to pay roughly $500/month. I’m going to assume that once the debt is paid, they put the $500 monthly payment towards an investment portfolio that grows at 5% and when we check in on it 35 after the wedding we find that the portfolio may be worth approximately $360,000.
The Alternative: $5,000 for a wedding and ongoing celebrations
What if the couple had a $5,000 wedding? If we assume they finance this as well and take 7 years to pay it off at 5% their monthly payment is approximately $70. Further, let’s just suppose that the $430/month they are saving versus the base case is put towards the investment portfolio which, just as above, is growing at 5%/year.
At year 5, they will have roughly $30,000 saved. Let’s say they take out $5,000 for a second honeymoon, and maybe a bigger ring?
At year 10, they will have roughly $66,000 saved. Let’s say they take out $10,000 for a third honeymoon, and an even bigger ring?
At year 15, they will have roughly $105,000 saved. Let’s say they take out $15,000 for a fourth honeymoon, and a boulder-sized ring?
Now we fast forward to year 35. They have $440,000 saved.
What’s The Difference?
In the Alternative Case, the couple (all other things being equal) have $80,000 more money and have less financial risk over the 35 years. If the marriage didn’t make it to 5 years, there would be less money invested in the failed marriage. As the marriage becomes more successful, it is celebrated accordingly.
With 52% of marriages ending in divorce, technically *most* marriages fail. Of course everyone goes into marriage insisting they will beat the odds. But given that you are potentially spending a very large amount of money for one day, at a time when you are probably already laden with debt (just finished school, first job, first house, maybe a baby in the near future) this is very risky, no matter how unromantic the notion. Instead of front-loading the costs of celebrating your union, it would make more sense to spread out those costs over time after having actually reached significant milestones.
Caveats
There are a few assumptions, but for the most part the variable ones cancel out as they apply to both situations:
- The portfolio may grow faster/slower than 5%
- The portfolio does not grow at a straight-lined 5%
- Inflation is not factored in
- etc.
For the most part, these things cancel out.
I would argue (not being married, mind you) that what you remember about your wedding day is how your spouse looked, and if something went wrong. You probably won’t remember 35 years later exactly how the invitations looked, how the room was decorated, what songs were played, etc. Dale mentioned that second marriages tend to have lower costs – do you think those marriages are any less special? Probably not.
Don’t most people pay cash for a wedding? Who plans a $35,000 and finances it? That sounds totally backwards and stupid no?
I think most people with big weddings logically have big money and are therefore fine.
Everything is rational.
Sam
Many people finance, in part or in whole, a wedding. Regardless, the opportunity cost remains if you pay for it in cash from savings.
It is ridiculous to finance a wedding or even the ring… You save, pay cash, and move on with your life.
…and what did your girlfriend say when you made this argument?
LOL – she’s cool. :)
In the end, it’s about open communication and planning. If people understand the tradeoffs and are willing to accept them, so be it. My point is that most people do not understand the tradeoffs.
That makes complete sense to me. The wedding industry is such a racket. You have a lifetime to show your commitment to each other, and a big wedding (whether you finance it or not) is generally a bad idea. I understand it’s a fantasy day, but that’s just it. Fantasy and reality are two different things. If money were no object I would have had a million dollar wedding, but ours was $7,500 and my wife and I couldn’t have been happier. We shared that day with friends and family. It rained like crazy, everybody got wet. Don’t remember the food. Don’t remember the decorations. I remember it was one of the happiest days of my life though.
Great comments Doug – thanks for sharing.
Our wedding was definitely on the frugal side, by choice and by necessity.
However, speaking to Italian friends a few years later, they pointed out the necessity of a big wedding in terms of ROI. They put on a really big show and expected really big wedding gifts would essentially pay for the wedding PLUS the happy couples’ first home. However, if they married on the cheap, apparently the rich uncles and cousins would put away the chequebook and just nibble at the buffet table. For them, the big wedding was a no-brainer.
Yes, there is certainly the cultural aspect to consider which comes with their own economics I suppose.
Andy R.
I notice the same thing with children’s birthdays. Big and splashy sometimes has a high “ROI” thanks to the gifts. But I guess there is a risk the gifts may not max utility or cover costs. The “conservative wedding investor” may thus prefer going frugal and investing the difference. Hey, maybe “wedding planners” should have “know-your-client” forms too?
They should at least fill out a 10 question questionnaire – that oughta do the trick. Seems to work for risk profiles for a lifetime of investing… :)
I would surely hope you don’t put on birthdays and weddings to get “ROI”. They are celebrations, not fundraisers.
The 3rd option for the frugal couple is skip the marriage, skip the ring, skip the wedding, skip the honey moon and live common law. You also don’t have to worry about becoming a statistic for a failed marriage.
With this scenario the couple’s net worth would be:
After 5 years: $34,000
After 10 years: $77,000
After 15 years: $132,000
After 35 years: $550,000
So if you think about it over the long term that one “fantasy” day is really costing you $190,000, holy sh*t! I sure hope the gifts are gold plated or have an engine & 4 wheels.
It really makes you wonder. There was a caller who said the reason you can’t avoid the big wedding is because for many people, it’s been a fantasy since age 7. Of course he hit the nail on the head, as we live in reality, not fantasy.
I know a couple that went the way Jordan suggested (living common law) mainly because the woman’s family wanted her to have a big wedding, but they wouldn’t pay for it. The situation seems ridiculous. They want to be married and want to just run off and get hitched cheaply. But, to keep peace in the family, they just live together. They’ve been together for more than a decade and have two children now.
In the end, it’s the lifetime of commitment and a beautiful family that is more important than one big party, as unromantic as that sounds. Your friends’ situation is very curious. You would think that in the end the family would want what makes YOU happy first and foremost, but chacun son gout.
Yeah, it baffles me how much weddings are!
Agree that the ROI might be greater, especially if you tell people to give you cash. I hear that nowadays, some weddings have ATM MACHINES at the door of the reception!
I think if I were to get married, I would want to make sure it’s cheap..
or I might do a destination wedding. People pay for themselves to get there.
Some people might also argue that a huge wedding can hinder the chance of divorce (?? not sure if there are studies that prove this though) because you wouldn’t want to divorce after you got married in front of so many of your close friends and family.